MSCI Rebalancing Could Pull $10 Billion From Japan:
Report

May 3, 2001 (PLANSPONSOR.com) - The planned
component adjustment of Morgan Stanley Capital
International's (MSCI) key equity indices may result in a net
outflow of over $10 billion from Japan, according to a report
from the Daiwa Institute of Research.

The adjustments would come from the adoption of a
free-float methodology and boosting target market
representation in other markets, as investors adjust
holdings that track or use the indices as a benchmark,
according to the report. A net total of 1.4 trillion yen
($11.47 billion) could be withdrawn.

At the end of April, market capitalization of Japanese
stocks included in the key MSCI indices totaled 244
trillion yen, according to Daiwa Institute of Research
estimates. Of that total, holdings by funds either
passively tracking the indices or mostly following them
could account for as much as five percent or 12 trillion
yen, according to Reuters.

When MSCI implements the changes in two phases at the
end of November and on May 31 next year, about 11.5% of the
funds could flow out of Japan because of limited
“tradability” in Japanese shares, according to a Daiwa
Institute analyst.

Hardest hit could be parents of companies with
outstanding market capitalization or those with shares
largely held by related corporations and creditor banks.
Stocks likely to benefit are those with large market
capitalization currently excluded from MSCI’s closely
watched indices.